Life Insurance Proceeds and Your Debts
Whether your life insurance proceeds can be used to pay the debts of your estate depends on whether you’ve named a designated beneficiary.
What is a Designated Beneficiary?
If you complete a form for the purpose of specifying the name of a beneficiary for your life insurance policy then the beneficiary is known as a designated beneficiary in legal language.
If there is a designated beneficiary for an insurance policy then, at your death, the proceeds from that policy belong to the beneficiary. Unless you’ve named your estate as the beneficiary, your life insurance money cannot be used to pay your creditors or any of the bills of your estate. Also, the account would not pass through the probate process even if the rest of your estate is probated. However, if you don’t fill out a designated beneficiary form, or if your beneficiaries don’t survive you, then the insurance money would be included in your estate. This means it would go through the probate process and could be used to pay off the bills of your estate.
Part of establishing and maintaining a solid estate plan is making sure that your life insurance policy is up-to-date, and knowing where the money will go in the event of your death. An estate planning attorney can help you with these tasks.
Author Bio
Catherine Hammond is the CEO and founder of Hammond Law Group, a Colorado-based estate planning law firm she founded in 2005. With a strong focus on protecting families from the legal consequences of disability and death, she creates comprehensive estate plans that minimize taxes, costs, and government interference.
A native of Denver, Catherine completed her undergraduate studies at Coe College in Iowa, and her Juris Doctorate from the University of Denver College of Law in 1993, concentrating on estate planning, tax, and mediation. Catherine is a member of various professional organizations, including WealthCounsel, ElderCounsel, the National Academy of Elder Law Attorneys, the Colorado Springs Estate Planning Council, and the Purposeful Planning Institute. Beyond her legal expertise, Catherine provides transformational coaching to support clients and their families through life transitions.
LinkedIn | State Bar Association | Avvo | Google